With the planet experiencing different challenges and issues the global economy has not been spared. Several factors have caused changes in the global economy over the years and one of the major factors is the political decision that countries make when it comes to trading such the US trade strain with China and Brexit. Although these decisions are made by individual countries their effects cause a ripple on the global economy. However, before digging into the complex aspects of the global economy we first need to understand some basic facts about the global economy.

Definition of the Global Economy

A global economy is formed by integrating the way countries trade with each other, share resources and interact. Three primary terms best describe this; globalisation, international trade, international finance and global investment.

Globalisation involves the integration of regional societies and economies to build a global network in line with immigration, communication and transportation laws. As a result, globalisation leads to international trade where countries trade goods and services thus impacting the economies of countries they chose to trade with or not to trade with.

Consequently, there will be a need for a common way of interacting with money which leads to international finance. This has led to global investments, mainly through foreign direct investments or FDIs.

A global economy is important because it helps to regulate resources at both a micro and macro level. With the global population continuing to increase, countries need to get smart in regard to how they meet the rising demand for basic amenities and other products or services. In the end, it leads to a long-term global impact. Early in the year, most countries were expecting an economic growth according to the 2019 Focus Economics forecast.

How It All Works

Everything about the global economy cannot be summarized without the mention of trade. These transactions begin with trading between countries in an effort to meet the demand and supply of products and services. Through these transactions:

  • Global economic growth happens.
  • Efficiency and productivity become the primary results.
  • Countries use these trade opportunities to leverage the competencies of various professionals they are on good trading terms with.
  • Even underdeveloped countries find the aid they need to improve their infrastructure and food distribution.

A global economy is influenced by different factors that help to set the curve on demand and supply. These factors include:

  • Natural resources
  • Population
  • Labour
  • Infrastructure
  • Law
  • Technology
  • Human capita

All these have a way of impacting the global economic curve, and that is why the curve keeps changing over time. In summary, a global economy uses goods and services to connect the world in response to the demand for these resources and the supply thereof.